China’s struggle with a weak yuan extends far beyond how it trades against the dollar.
The People’s Bank of China has been supporting the yuan versus 23 trading partners’ exchange rates — including the euro, yen and pound — with its daily fixings against these currencies since mid-August, according to calculations by Bloomberg. That has resulted in the stabilization of an official gauge measuring the yuan’s value versus peers.
While there has been less attention on the PBOC’s efforts to prop up the currency against other major peers, it seems to be working. The trade-weighted basket has gained about 1.2% since the end of July, while the onshore yuan has weakened around 2% versus the greenback during the period. The PBOC has been digging deeper into its policy tool kit to stem a slide in the currency, as the yuan slid to a 16-year low against the dollar last week.
To be sure, the yuan basket index’s relative stability may also be partly due to Asian currencies’ weakness against the dollar on bets that the Federal Reserve may keep interest rates higher for longer. The yen and the South Korean won are down more than 3% versus the greenback since late July.
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